G20 Toronto Summit: unexciting, but constructive?

June 26, 2010

-Paola Subacchi, Research Director, International Economics, Chatham House, London. The opinions expressed are her own.-

The G20 summit in Toronto is not expected to create much excitement, and it never was. It comes after an intense summitry year and two meetings  – held in 2009 in London and Pittsburgh – that are difficult acts to follow.

At the London Summit the G20 leaders agreed on a number of reforms designed to head off future crises. By increasing the resources available to the IMF they created a critical crisis-resolution mechanism.

Furthemore, the London Summit set the pace for the reform of the international economic institutions, notably the IMF, and for a more inclusive governance of the world economy. In Pittsburgh the U.S. administration made a further step towards better economic governance and recognised the G20 as the forum for global economic and financial affairs.

If it is desirable for the Toronto summit to provide a pause to reflect on and consolidate the progress achieved last year, the agenda, however, looks not only modest, especially in relation to the still monumental challenges that are looming in the post-crisis world, but also unable to generate a consensual view.

It stretches from reforming the financial sector to the reconstruction of the international economic institutions.

“A basket of policy options to achieve stronger, more sustainable and more balanced growth” will be submitted for consideration. What does this mean? Can we expect some concrete measures to address urgent issues – such as fiscal tightening, economic rebalancing and Europe’s sovereign debt crisis? Most crucially, will there be a coherent and cohesive view from the G20 leaders?

The odds are not particularly favourable. Over the last week or so the leaders of the key countries have been busy telling the word what their countries wanted and needed. Germany and France issued a statement in support of a global tax on financial transactions.

President Obama wrote another letter urging countries not to withdraw stimulus too soon. And China, which astutely removed a controversial item from the G20 agenda by ending the nearly-two year peg to the dollar a week before convening in Toronto, made it clear that the move was most and foremost dictated by “China’s domestic conditions and its own development strategy”.

The problem with the G20, that is likely to doom its credibility and legitimacy, is the inability to morph from a crisis committee into a steering committee with a rolling agenda that focuses on key economic issues and preventive action.

Arguably it was easier to agree on measures and speak with one voice when confronted with the threat of simultaneous economic collapse. Months later and with a global economic recovery that proceeds at different paces – with the emerging markets economies outpacing the developed world – there is definitively less appetite for concerted action.

Even if the Toronto summit never promised to be exciting, it now looks like it could miss the opportunity to move the multilateral agenda forward. This does not mean that there will be no concrete measures arising from  the summit.

We will probably see the implementation of measures to improve supervision and transparency of hedge funds, credit rating agencies and OTC derivatives, and some possible discussions on how the financial sector should contribute towards government’s intervention to repair the banking system. However, given the divergence of views across the G20 countries, these measures are likely to be patchy rather than providing the basis for global financial architecture.

In the best case scenario the Toronto summit will set the ground for a deeper agenda and concrete deliverables at the G20 Summit in Seoul in November. In the worst case it will show to the growing number of sceptics the limitations of multilateral dialogue and action, perhaps contributing to the slow shift of prefences towards regional caucuses and bilateral agreements.

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